Questions and Answers of Principles Taxation Business

Find the IRS Revenue Procedure that gives the standard deduction amounts for the 2019 tax year. Prepare a table reporting the standard deduction amounts and their associated filing statuses. Also
For its first four years of operation, Corporation Y reported the following taxable income. In 2019, Corporation Y generated $900,000 ordinary income and recognized a $20,000 loss on the sale of
Mr. Wycomb is a professional golfer who played 23 tournaments in 14 different states and earned $893,000 total prize money for the year. When he is not traveling, Mr. Wycomb lives with his family in
Extronic, a calendar year, accrual basis corporation, reported a $41,900 liability for accrued 2018 state income tax on its December 31, 2018, balance sheet. Extronic made the following state income
Zeno Inc. sold two capital assets in 2019. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2015, and its tax
Corporation Q, a calendar year taxpayer, has incurred the following Section 1231 net gains and losses since its formation in 2016. a. In 2019, Corporation Q sold only one asset and recognized a
On April 1, 2019, Bullen Company transferred machinery used in its business to Eaton Inc. in exchange for Eaton common stock. Both Bullen and Eaton use the calendar year for tax purposes. Bullen’s
In 2017, an industrial plant owned by Company C, a calendar year taxpayer, was destroyed in a flood. C’s adjusted basis in the plant was $1.65 million, and the company received a $2 million
In 2018, transportation equipment owned by Corporation ABC was stolen. The adjusted basis in the equipment was $105,000, and ABC received a $400,000 insurance reimbursement. It immediately paid
In 2017, an office building owned by Firm F was completely destroyed by fire. F’s adjusted basis in the building was $485,000, and its insurance reimbursement was $550,000. On its 2017 tax return,
On June 2, 2019, a tornado destroyed the building in which FF operated a fast-food franchise. FF’s adjusted basis in the building was $214,700. In each of the following cases, determine FF’s
On January 10, 2017, a fire destroyed a warehouse owned by NP Company. NP’s adjusted basis in the warehouse was $530,000. On March 12, 2017, NP received a $650,000 reimbursement from its insurance
On March 1, 2019, Eve and Frank each contributed $30,000 cash to the newly formed EF Partnership in exchange for a 50 percent general interest. The partnership immediately borrowed $50,000 from an
Marcia, a single individual, has qualified trade or business income of $240,000. Her business paid $80,000 of W-2 wages this year and has $50,000 of tangible business property. a. Compute
Herold had been a calendar year S corporation since 1990. On October 10, 2019, Mrs. Hughes sold 18 shares of Herold stock to a foreign partnership, thereby terminating Herold’s S election.
Evan, a single individual, operates a service business that earned $110,000 in 2018. The business has no tangible property and paid no W-2 wages. a. Compute Evan’s QBI deduction, assuming his
For 2019, Ms. Deming earned wages totaling $225,000. Calculate any .9 percent additional Medicare tax owed, assuming that: a. Ms. Deming is single. b. Ms. Deming files a joint return with
Calculate the total Social Security and Medicare tax burden on a sole proprietorship earning 2019 profit of $300,000, assuming a single sole proprietor with no other earned income.
Jumper Inc., which has a 21 percent tax rate, owns 40 percent of the stock of a CFC. At the beginning of 2019, Jumper’s basis in its stock was $660,000. The CFC’s 2019 income was $1 million,
Mr. Trudel and Mr. Varga founded TV Corporation six years ago and have devoted every waking hour to the corporate business. During the first four years, neither shareholder received a salary. During
Mr. Keach is a professor at a private university. The university waives the tuition for a faculty member’s child who meets the entrance requirements. Mr. Keach’s two children are enrolled in
Ms. Larrick is employed at VD’s corporate headquarters and often works late hours. The headquarters building is located in a high-crime urban area. As a result, corporate policy is that any
In 2010, BB granted an incentive stock option (ISO) to Mr. Yarnell to buy 8,000 shares of BB stock at $7 per share for 10 years. At date of grant, BB stock was trading on the AMEX for $6.23 per
KP, a calendar year corporation, filed its 2015 return on May 1, 2016. On February 19, 2019, it filed an amended 2015 return reflecting $2.61 million less taxable income than the original return and
Ms. Cross didn’t request an extension of time to file her 2018 income tax return and didn’t mail the completed return to the IRS until August 8, 2019. She enclosed a check for $2,380, the correct
Mr. Nugent is an enrolled agent in tax practice. Last year, the IRS imposed a $1,000 preparer penalty on him, and he immediately hired an attorney to contest the penalty. Mr. Nugent’s legal fee was
Mrs. Emmet has decided to contest a $28,650 tax deficiency. She understands that she can initiate the litigation in district court or the Tax Court. Identify any reasons why she might prefer one
During the audit of Mr. and Mrs. Jessel’s 2016 and 2017 tax returns, the revenue agent learned that they kept two sets of books for their sole proprietorship. A comparison of the two revealed that
Mrs. Singer owns a profitable sole proprietorship. For each of the following cases, use a Schedule SE, Form 1040, to compute her 2018 self-employment tax and her income tax deduction for such
In 2019, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 gain on the sale of business furniture and shelving, all of which was
Marcus, a cash basis individual, is a general partner in MNOP Partnership. Both Marcus and MNOP use a calendar year for tax purposes. According to the partnership agreement, MNOP pays a $10,000
On December 10, 2018, the representative of a national charitable organization contacted the CEO of Wilkie Inc., a calendar year accrual basis corporation, to solicit a $100,000 donation. The CEO
In 2018, Bartley Corporation’s federal income tax due was $147,000. Compute the required installment payments of 2019 tax in each of the following cases: a. Bartley’s 2019 taxable income is
In 2018, NB Inc.’s federal taxable income was $242,000. Compute the required installment payments of 2019 tax in each of the following cases: a. NB’s 2019 taxable income is $593,000. b.
Refer to the facts in the preceding problem. In 2020, the CFC’s income was $600,000, none of which was subpart F income or GILTI, and it distributed a $300,000 dividend to its shareholders
Mr. Leonard died on April 16. Mr. and Mrs. Leonard had been married for 11 years and had always filed a joint return. Mrs. Leonard remarried on December 21. Identify the tax issue or issues suggested
Mr. and Mrs. Keppner file a joint income tax return. Compute their standard deduction assuming that: a. Mr. Keppner is age 68, and Mrs. Keppner is age 60. b. Mr. Keppner is age 70, and Mrs.
Until March of this year, Mr. George took care of his invalid mother in his own home and provided 100 percent of her financial support. In March, she became eligible for Medicaid, and Mr. George
Ms. Noteboom, a single taxpayer, projects that she will incur about $13,500 of expenses qualifying as itemized deductions in both 2019 and 2020. Assuming that her standard deduction is $12,200 in
Mr. Tilton is a 20-year-old college student. This year he lived on campus for nine months and in his parents’ home during the summer. His parents paid for all Mr. Tilton’s living expenses, but a
Mr. and Mrs. Bosco have an 11-year-old child. The couple is divorced, and Mrs. Bosco has sole custody of the child. However, Mr. Bosco pays his former wife $1,200 child support each month. Identify
Mr. Glenn, age 90, lives in a nursing home. He has no gross income and is financially dependent on his four adult children, each of whom pays 25 percent of the cost of the home. Identify the tax
While checking the computations on his Form 1040, Mr. Gordon realized he had misclassified a $10,800 expense as a business deduction on Schedule C. The expense should have been an itemized deduction
Ms. Gomez earned a $91,250 salary, and Mr. Hill earned a $171,000 salary. Neither individual had any other income, and neither can itemize deductions. a. Compute Ms. Gomez and Mr. Hill’s
Mr. Pitcock’s AGI includes an $8,700 dividend paid by a German corporation and $11,600 interest paid by a Canadian bank. He paid $3,000 foreign income tax this year. Identify the tax issue or
Mr. and Mrs. Wynne have full-time jobs. They employ Mrs. Wynne’s 18-year-old sister as an after-school babysitter for their 10-year-old son. Identify the tax issue or issues suggested by the
Mr. Severson, a self-employed attorney, has sole custody of his nineyear-old daughter. This year she spent eight weeks during the summer at a recreational camp. The total cost was $3,800. Identify
Single individuals Sam and Zelle were married this year and filed their first joint return. To what extent did this change in filing status affect the following? a. Sam and Zelle’s aggregate
During the first eight months of the year, Ms. Layne was self-employed and earned $63,200 net income. In September, she accepted a job with MW Company and earned $75,000 salary through the end of the
Mr. and Mrs. Marceleno own a sole proprietorship that generates approximately $60,000 annual net profit. This business is the couple’s only source of income. In April, June, and September, they
In November, Mr. Kurk discovered that his combined income tax withholding and estimated tax payments would be less than his prior year tax and, therefore, would not be a safe-harbor estimate. He
Mr. and Mrs. Ludwig have the following income items. Dividend eligible for 0% preferential rate................$ 3,400 Capital gain eligible for 0% preferential
When he accepted his job, Mr. Martinez instructed his employer to withhold substantially more federal income tax from his monthly paycheck than was indicated by his marital and family situation. As a
Ms. Jobe has been very ill since the beginning of the year and unable to attend to any financial matters. Her CPA advised that she request an automatic extension of time to file her prior year Form
Mr. and Mrs. Kigali’s AGI (earned income) was $14,610. Their federal income tax withholding was $850. They had no itemized deductions and two dependent children, ages 18 and 19. If Mr. and Mrs.
Jaclyn Biggs, who files as a head of household, never paid AMT before 2019. In 2019, her regular tax liability was $102,220 which included $39,900 capital gain taxed at 20 percent, and her AMTI in
In January, Ms. Northcut projects that her employer will withhold $25,000 from her 2020 salary. However, she has income from several other sources and must make quarterly estimated tax payments.
Mr. and Mrs. Brown report taxable income of $130,000 in 2019. In addition, they report the following. Excess Social Security withholding credit................$ 2,200 Estimate tax
Mr. and Mrs. Boltono, ages 64 and 65, are both retired and live on Social Security plus the interest and dividends from several investments. Their taxable income averages $35,000 a year. Mrs. Boltono
Mr. Zelig was recently promoted to an executive position by his corporate employer. The corporation now requires him to entertain clients much more frequently, and Mr. Zelig expects to incur at least
Mr. and Mrs. Schill are CPAs. Mr. Schill is an employee of a national accounting firm, while Mrs. Schill operates her own professional practice. Each year, the couple pays approximately $1,300 to
Ms. Jorgen recently moved from Boston to Pittsburgh to take a job with OP Inc. She sold her home in Boston, and OP paid the $14,500 realtor’s commission on the sale. Identify the tax issue or
Corporation J sponsors a qualified profit-sharing plan for its employees. Three years ago, Ms. Purdy, a participant in the plan for more than 12 years, quit her job and left town without leaving a
Mr. McNeil, age 50, is a self-employed writer who published 11 novels in the past 20 years. Each year, he makes the maximum contribution to his Keogh plan. This year, he borrowed $200,000 from the
Mr. Norby, age 53, owns a traditional IRA with a $215,000 current balance. Mr. Norby recently divorced his wife and transferred this IRA to her as part of the property settlement. Identify the tax
In 2014, BT granted a nonqualified stock option to Ms. Pearl to buy 500 shares of BT stock at $20 per share for five years. At date of grant, BT stock was trading on Nasdaq for $18.62 per share. In
Mr. Evon, who participates in his corporate employer’s qualified defined benefits plan, will be entitled to receive an annual pension when he retires in five years. What is the maximum contribution
Ms. Calhoun is age 48 and single. What is the maximum contribution that she can make to a Roth IRA if: a. Her AGI consists of an $89,400 salary from her employer? b. Her AGI consists of an
Mr. Gilbert is self-employed and makes annual contributions to a Keogh plan. Mrs. Gilbert’s employer doesn’t offer any type of qualified retirement plan. Each spouse contributes the maximum
Mrs. Shin retired in 2018 at age 63 and made her first withdrawal of $20,000 from her traditional IRA. At year-end, the IRA balance was $89,200. In 2019, she withdrew $22,000 from the IRA. At
Mr. Ballard retired in 2019 at age 69 and made his first withdrawal of $35,000 from his traditional IRA. At year-end, the IRA balance was $441,000. In 2020, he withdrew $60,000 from the IRA. At
Ms. Shaver, a single taxpayer, has $213,000 taxable income, which includes a $19,580 qualified dividend from Benbow Inc. Compute her income tax on this dividend assuming that: a. On the basis of
Dianne Stacy, a single taxpayer, has $272,000 taxable income, which includes an $88,400 dividend from Tobler Mutual Fund. Ms. Stacy’s marginal tax rate on ordinary income is 35 percent, and her
Ms. Quint sadly concluded that a $7,500 debt owed to her by Mr. and Mrs. Lammas is uncollectible. Compare the tax consequences to Ms. Quint if the debt arose because she extended credit to Mr. and
At the beginning of the year, Mr. Olsen paid $15 per share for 620 shares of Carmel common stock. He received cash distributions totaling $840. His Form 1099 reported that $700 was a qualified
Mr. and Mrs. Gamble paid $53,000 for a corporate bond with a $50,000 stated redemption value. They paid the $3,000 premium because the bond’s annual interest rate is higher than the market interest
Ms. Barstow purchased a limited interest in Quinnel Partnership in 2019. Her share of the partnership’s 2019 business loss was $5,000. Unfortunately, Ms. Barstow couldn’t deduct this loss because
Mrs. King is a shareholder in TK, an S corporation. What fact would be the strongest indicator that she materially participates in TK’s business?
Two years ago, Ms. Eager loaned $3,500 to her 20-year-old daughter, who used the loan proceeds to buy a used car. This year, the daughter informed her mother that she could not repay the debt.
Mr. Morales was a 25 percent partner in MNOP Partnership, which operated a gift and souvenir shop. He materially participated in the partnership business. Several years ago, Mr. Morales loaned
This year, Ms. Tan had a $29,000 capital loss carryforward and an $8,200 suspended passive activity loss carryforward. She died on September 12 and didn’t recognize any capital gain or passive
In 2017, Mrs. Ulm paid $80,000 for a corporate bond with a $100,000 stated redemption value. Based on the bond’s yield to maturity, amortization of the $20,000 discount was $1,512 in 2017, $1,480
Mr. Oakem, a 66-year-old divorced individual, has two children with his former wife. He recently married a 45-year-old woman with no property of her own. Therefore, Mr. Oakem plans to change his will
Mr. Durst died on March 8. His taxable estate includes a traditional IRA with a $140,000 balance. Mr. Durst’s contributions to this IRA were fully deductible. His son is the beneficiary of the IRA.
Mrs. Allen died on June 1. She and her surviving husband were coowners of real property with a $200,000 adjusted basis and a $1.6 million FMV. Mr. Allen inherited his wife’s half of the property.
A local radio station offers a $5,000 reward for information leading to the arrest of vandals and other petty criminals. Mr. Jenks received the reward for identifying three people who spray-painted
Mr. Saul, a real estate broker, just negotiated the sale of a home for a wealthy client. Two days after the sale closed, he received a beautiful leather briefcase from the client with a card reading:
Mr. Tinsler was a contestant on a game show and won a vacuum cleaner with a retail price of $365. Three months later, he sold the unused appliance in a garage sale for $275.
Ms. Lewis, a bartender and aspiring actress, won a statewide beauty pageant and was awarded a $15,000 cash scholarship to further her education and career goals. She used the money to pay for private
On a recent scuba dive, Mr. Underhill located a shipwreck and recovered a Spanish sword inlaid with precious stones. The sword’s appraised value is $11,500. Mr. Underhill mounted the sword over his
The pilots of Skyway Airlines have been on strike for four months. Ms. Biggs received a $2,700 benefit from her union, the Airline Pilots Association International. The union funded the benefits for
Mrs. Overton, age 60, won an age discrimination suit against her former employer. The court awarded her $100,000 in damages for mental anguish and $200,000 for the violation of her civil rights.
Mr. Sheraton suffers from severe arthritis. His physician advised him to swim for at least one hour every day in a heated pool. Because such a facility is not conveniently located in his area, he
Mr. Ruskin, a CPA who charges $150 per hour for his professional services, keeps the financial records for a local charity. Although he spends at least 10 hours each month at this task, he doesn’t
Mr. and Mrs. Fitch bought $500 worth of Girl Scout cookies from their godchild. Because they don’t eat sweets, they gave away every box to various friends and family members.
Mr. Dix borrowed $600,000 to purchase 62 acres of undeveloped land and secured the debt with the land. He converted a three-room log cabin on the land to his principal residence. This year, he paid
Ms. Seagram paid $155,000 for a house that she occupied as her principal residence until February 1, when she moved out and converted the house to rental property. The appraised FMV of the house was
Mr. and Mrs. Ayala purchased their home one year ago. This year, a local government attempted to seize the home because the former residents had failed to pay their property taxes for 12 years. Mr.
On January 12, 2017, Mr. and Mrs. Nixon moved out of their old residence (where they had lived for 22 years) and into a new residence purchased nine days earlier on January 3. They finally sold their
Percy Wilson is a calendar year taxpayer. What is the unextended filing date of Percy Wilson’s 2019 federal income tax return if: a. Percy Wilson Inc. is a corporation? b. Mr. Percy

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